One man's campaign to make financial transparency a human rights issue

WASHINGTON, (TrustLaw) – Putting financial issues at the heart of the human rights campaign might sound like a tall order. But not for a man whose work explaining how $1 trillion in dirty money leaves poor countries each year has helped get financial transparency onto the agenda of world leaders.

Over the past six years, Raymond Baker has played a leading role in explaining the mechanisms behind illicit capital flows -- the money earned from crime, corruption or tax evasion -- and how they destabilize economies, threaten national security, undermine development, support dictators, drug lords and terrorists and line the bank accounts of criminals. The heads of the G20 top developed and emerging nations are paying attention.

“Illicit financial flows were not part of the global vocabulary,” said Baker, a founder and director of the advocacy group Global Financial Integrity . “We have put it into the global lexicon. We have succeeded in putting it onto the agenda at the World Bank, the United Nations, the G20.”

“We would like to do the same thing in having financial transparency, economic transparency and human rights linked on the same agenda,” he said, discussing his priorities for the year ahead in an interview at his offices five blocks from the White House.

Baker, 77, was for 35 years a businessman, first in Nigeria and then throughout Africa, Latin America and parts of Asia, where he saw first hand the damage from corruption, tax evasion and stretching business rules through trade mispricing to move assets overseas. He estimates the illicit capital flowing through the global financial system at at least $1 trillion each year. Put another way, $10 leaves developing countries for every one dollar that flows in as foreign aid.

“How in the world do you promote health and education when $1 trillion is moving out of developing countries? Surely this is a human rights issue,” he said.

Billions of dollars are spent annually on child health, for example, yet the World Health Organisation reports that 6.9 million children under the age of five died in 2011, more than half of them from diseases that could have been prevented or treated. Likewise, developing countries like Angola and Equatorial Guinea, rich in oil, gold and timber with booming exports, are failing to develop as kleptocrats use the profits for their own pleasure, he says.

Arvind Ganeson, director of business and human rights at Human Rights Watch, which investigates specific abuses of power that impoverish countries, said the strength of Baker's work has been in illuminating how money leaks out of poor countries into an under-regulated financial system, and in providing concrete solutions.

"What Raymond has done and what has been enormously helpful is in explaining the mechanisms of how governments, individuals or institutions mismanage or steal money that undermines the rights of people. While his focus was on trade mispricing and tax evasion, there is a convergence with human rights," said Ganeson.

For Baker, stopping the illicit flow of money is crucial to political stability. "Trillions of dollars are moving through the shadow financial system and parked offshore in accounts earning half a percent a year, rather than being productively invested in their country. Think about what contribution it would make to the reduction of inequality and increase in GDP if that money was productively invested? We are talking about something utterly fundamental to the capitalist system.”

Baker formed Global Financial Integrity to promote actions to curtail the cross-border flow of illicit money after his ground-breaking book “Capitalism’s Achilles Heel” was published in 2005. In it he exposed the workings of a shadowy network of secrecy jurisdictions and dummy corporations that he estimated has allowed some $11.5 trillion to be stashed in 70 or so tax havens, allowing corrupt officials, kleptocrats and corporations to evade the financial rules of a globalised economy. He focused on how import and export bills are manipulated to transfer illicit gains around the world.

The shadow financial system, helped by banks and corporations, allows the laundering of money for drug kingpins and terrorists, who threaten state stability and national security, Baker said. HSBC’s agreement in December to pay a record $1.92 billion U.S. fine to settle charges it laundered Mexican drug money, for example, showed how lax enforcement can facilitate crime -- abuses that can be checked through strong anti-money laundering laws, enforcing rules for banks, requiring companies to disclose their ownership structures, he said.

The 2007-2009 financial crisis gave momentum to Baker’s message. G20 leaders at their London summit in April 2009 for the first time took aim at tax havens and declared: “The era of bank secrecy is over.” By its Seoul summit a year later leaders were articulating the linkage between illicit flows, corruption and kleptocrats, and have since then developed action plans for countries to share tax information, freeze illegal assets and improve financial disclosure.

The next step is to implement these plans and achieve a broader recognition of the damage caused by a murky financial system. “The task is to secure these gains and take them to the next level – greater transparency in the global financial system with a focus on the benefits to be derived for emerging market and developing countries,” Baker said.

MAKING PROGRESS

He has made headway. Two years ago, he brought together human rights campaigners from groups including Amnesty International, Global Witness, Christian Aid, and social investment groups and they signed the New Haven Declaration, pledging to work on financial transparency as integral to fighting poverty and oppression in developing countries.

In the European Union, the debt crisis and popular disgust over tax evasion have added momentum to drives for financial transparency, especially in the United Kingdom, the Netherlands, Denmark and Sweden. In Australia, an inter-agency group meets monthly to exchange financial, tax, banking, policing and security intelligence, which Baker calls a recognition of their interlinkage.

Progress in the United States is more piecemeal. He is encouraged by discussions at the U.S. Treasury on tougher regulations for banks to check who owns and benefits from assets in a bank account, which could make up for the slow movement in Congress of legislation on disclosing companies’ beneficial ownership.

The Treasury also is heading an inter-agency review on money laundering, which may address what Baker sees as an overly fragmented approach where money laundering is seen as a law enforcement problem. He says its impact is far broader, acting as the grease that enables human trafficking, drug smuggling, tax evasion, asset stripping, terrorist financing – factors that undermine human rights, impoverish people and weaken states.

Baker plans to hold a series of regional conferences this year in Latin America, Africa and Asia, bringing together policymakers, bankers, corporate officials and civil society groups to discuss the linkage between illicit financial flows and human rights. He views the issue as not only ethically important, but also vital to the resilience of democracy and capitalism.

In many countries the gap between rich and poor has widened dramatically over the last 30 years, which Baker says is politically destabilizing. The shadow financial system has directly contributed to this inequality and needs regulating, he said. “Capitalism must move out of the shadows to survive, not democracy. But democracy is under substantial strain, stemming from the degree to which you can abuse the capitalistic system for less than laudable purposes.”

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In a camp for displaced Rohingya Muslims residents frequent bamboo “internet huts” where they can communicate with relatives who left the country, escaping the violence that led to 200 deaths and left over 140,000 homeless in 2012